In May, we wrote about the IRS’s plans to hire up to 700 additional agents to pursue individuals who commit tax mistakes or tax fraud. At the time, we speculated that the work force losses and shortfalls at the IRS had, perhaps, permitted for a window where enforcement efforts were less stringent than they should have been. We stated in that post that increases in population and tax filings likely had to have some impact on enforcement efforts. However, increased use of electronic systems and computerized tools likely mitigated some of the effects of the worker shortfall.
In any case, this window is almost certain closing and more details have emerged regarding the IRS’s plans to bolster its tax enforcement ranks significantly. If you do not read any further, at least understand that it is highly likely enforcement efforts will be significantly stepped-up and errors and improprieties that may have flown under the radar in previous years will almost certainly trigger a request for information, an audit, and potential additional enforcement action. Therefore, it is important to fix mistakes now with an experienced tax attorney before errors and misstatements can develop into potentially serious allegations. If you are interested in understanding some of the details regarding the IRS’s plan to hire and deploy hundreds of new tax enforcement agents, read on.
According to information revealed at recent IRS Open House, IRS Appeals is likely to add roughly 50 to 60 employees. However, IRS Appeals typically hires its employees from the ranks of those already working for the IRS. This means that IRS Appeals hiring likely will not decrease the number of outside hires the entire IRS eventually makes. Therefore, it is likely that both IRS Appeals and its ranks of auditors and enforcement agents will be bolstered. If you have undiscovered or outstanding tax issues that you would slip through the cracks, don’t count on it.
It is also important to discuss the fact that IRS Appeals national inventory of cases is down. Inventory refers to the number of cases that are currently being worked by the agency. IRS Appeals is moving through cases more quickly and has been able to significantly reduce the number of cases being handled by the agency. This has also had the effect of making the current cases in its inventory more current. This means that the bureaucratic lag that many taxpayers expect is now not present or significantly reduced. Thus, delay in seeking assistance over a tax issue can cause real harm.
A simple principle that holds true in any organization is that it can take some time for new agents to acclimate to their job or long-time agents to grasp the full extent of their new responsibilities. Unfortunately, this can result in frustration for taxpayers as agents in new roles may misapply the law or IRS regulations. In particular, new Revenue Agents and Revenue Officers (RAs and ROs) are known to sometimes make mistakes as they learn rules and regulations. A taxpayer may be tempted to push for an appeal, but in some cases the matter may be able to be handled through a group manager. However, one should anticipate having to make the case once again to the group manager including pointing out errors in the application of the law or regulations. While getting the error corrected at this level can reduce costs and resolution time, it will still require a significant amount of negotiation and advocacy. Should resolution not be possible at this level, the matter can still be appealed.
Of course, should the matter be appealed, the risks of an appeal must be managed. One risk discussed during the open house included the fact that should an Appeals Officer receive new information from the taxpayer or representative, they could send the entire case back to the RA or just send the new information back to the RA to investigate. If the entire case is sent back, the RA could decide to change course on unrelated issues. At the open house, comments seemed to indicate that RAs would only be able to address specific issues and not the entire case, but new agents may need to be reminded of this fact. All in all, an influx of new hires and individuals filling new roles at the IRS reinforces the need for careful legal guidance to ensure that the matter does not go off the rails and result in unnecessary fines and penalties.